McGladrey & Pullen and RSM McGladrey hammer out details

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Multistate CPA firm McGladrey & Pullen LLP in July announced its intent to terminate a 10-year-old agreement in which M&P functioned as an independent auditing arm of H&R Block Inc.’s wholly owned subsidiary, tax and consulting firm RSM McGladrey Inc.

Since then, there has been a process in play whereby H&R Block's and RSM McGladrey’s desire for stability, clarity in the relationship, and resolution of issues surrounding their non-compete agreements with McGladrey & Pullen were in conflict with M&P’s desire to go its own way – reportedly fueled partially by its unhappiness with the fee arrangement with H&R Block and profit-split for M&P under the old agreement.

RSM McGladrey and McGladrey & Pullen have had an alternative practice structure. Though separate and independent legal entities, the two firms work together to serve clients’ business needs. For the past three years the two firms, together, ranked as the fifth largest accounting, tax, and business consulting firm by Accounting Today.

A binding arbitration agreement announced in December, which, in effect, confirmed the CPA section of the non-compete agreement between RSM McGladrey and M&P, seemed to assure that some reconciliation between the two partners would eventually be worked out because the economics of proceeding for an extended time as an audit-only firm were, reportedly, not attractive to M&P.

A filing with the U.S. Securities and Exchange Commission by parent company H&R Block earlier this month, along with other published reports, confirm that both entities have secured significant positive agreements that have resulted in reaffirming a long-term partnership, with RSM and H&R Block receiving clarity, as well as a streamlined agreement that basically confirms the former relationship while clarifying the relative positions of the partners.

The SEC filing also makes clear their non-complete agreement and provides changes in the fee arrangements that make for better terms for McGladrey and Pullen partners vis-a-vis H&R Block. Furthermore, the agreements could enhance the value of the components for H&R Block should the parent wish to spin off segments in the future.

Both companies are pleased the arrangement is now on a sound footing and that they have achieved positive results during the negotiations. Reported facets of the new agreement include an RSM McGladrey agreement to split profits at 33 percent for M&P and 67 percent for RSM, which is a 3 percent increase for M&P.

The agreement reportedly includes a 2 percent reduction, approximately, of the administrative fees M&P pays annually to RSM McGladrey. It also has been reported that RSM McGladrey also received tighter and clearer non-compete clauses, as well as other concessions.

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